Leslie v Farrar Construction Ltd

Construction – Contract – Overpayment – Waiver – Oral agreement between appellant and respondent for acquisition and development of sites – Appellant acquiring sites and respondent carrying out housing development in accordance with agreed budget – Whether appellant entitled to recover overpaid “build costs” on completed developments as sums paid under a mistake – Whether recovery of overpayment precluded where build costs not exceeding agreed budget figure – Appeal dismissed In 2008, the appellant, a wealthy businessman, entered into an arrangement with the respondent with a view to building up a property portfolio. The parties made an oral framework agreement under which the appellant would acquire sites suitable for development and the respondent would design and construct housing on the sites to an agreed scheme design and budget, with the appellant paying the respondent’s “build costs”. On completion, the open market value of the development would be agreed, the acquisition and building costs would be deducted, and the resultant profit would be shared equally between the parties. The parties undertook and completed five developments over the next five years. In each case, they agreed a costs budget for the development before work began. As works proceeded, the respondent submitted requests for interim payments in rounded sums which were not supported by any details or evidence of costs incurred. The appellant made the payments because they were within budget and appeared reasonable. When each project was completed, the parties agreed the sum due to the respondent in respect of the build costs and profit share. The respondent produced no schedule setting out all the build costs; instead, the parties simply assumed that the build costs were the same as the agreed budget costs. The appellant made a profit of about £1.2m on the five completed developments. The parties subsequently fell out and the collaboration between them came to an end. The appellant brought a claim for repayment of all sums that he had overpaid to the respondent, as sums paid under a mistake. The judge held that the relevant “build costs” comprised the direct cost of labour and materials, together with site-specific preliminaries. In respect of the five completed developments, he found that the build costs charged by the respondent were too high by 22%, because they included impermissible items, resulting in an overpayment of £297,550. However, he also found that, so long as profits were good, the appellant had not been concerned to investigate the actual costs as long as the sum charged did not exceed the budget figure. On that basis, he refused to order repayment, finding that the respondent had a valid defence of waiver or estoppel. The appellant appealed. Held: The appeal was dismissed. (1) The judge had properly been entitled to treat the five completed developments as closed transactions. There was no basis for interfering with his finding that the parties had agreed to deal with each development project as a separate matter, so that, as each development was completed, they reached final agreement on the figures and closed their books on that particular project. In that regard, he had correctly treated the five completed developments differently from ongoing projects, in respect of which the appellant was entitled to repayment of any excess. (2) On the judge’s findings, the appellant’s main concern was not to exceed budget costs. So long as the final payments were in line with the budget costs, the appellant was not concerned about whether the sums which he was paying accurately represented the build costs. It was beneficial for both parties to avoid the costs and effort which would be involved in auditing and negotiating the actual amount of the build costs. Where one party voluntarily made a payment to another, knowing that it might be more than he owed, but choosing not to ascertain the correct amount due, he could not ordinarily recover that overpayment in the absence of fraud or misrepresentation. The appellant did not allege fraud or misrepresentation. The overcharges levied by the respondent resulted from the parties’ differing understanding of what the phrase “build costs” meant in the context of the framework agreement. Misunderstandings of that nature were not surprising if a builder and a property developer chose to embark on a series of multi-million pound projects on the basis of a brief oral agreement which no one troubled to reduce to writing. In making the final payments on each of the five completed developments, the appellant was not acting under a mistake or under the influence of an erroneous assumption. He had taken a conscious decision to pay the sums requested without investigation, because that suited his purposes. It was a feature of countless business negotiations every day of the week that people agreed round figures or compromises because they could not be bothered to go into the details. Anyone with experience of property development, including the appellant and the respondent, would know that the actual build costs would not be the same as the budget costs. By proceeding on the basis of equating build costs with budget costs, the appellant was self-evidently running the risk of paying more than was strictly due. A party should not be relieved of a risk knowingly run. It followed that the appellant was not entitled to repayment: Kelly v Solari (1841) 9 M&W 54 and Barclays Bank Ltd v W&J Simms Son & Cooke (Southern) Ltd [1980] QB 677 and Deutsche Morgan Grenfell Group plc v Inland Revenue Commissioners [2006] UKHL 49; [2007] 1 AC 558 applied. (3) In light of the foregoing, it was not necessary to reach a decision on waiver or estoppel, but the better view was that the appellant had waived his right to make any detailed inquiry into the actual build costs of each development. Nicholas Braslavsky QC and Andrew Singer (instructed by Ramsdens Solicitors LLP, of Huddersfield) appeared for the appellant; Simon Myerson QC and Michael Ryan (instructed by Levi Solicitors LLP, of Leeds) appeared for the respondent. Sally Dobson, barrister Click here to read the transcript of Leslie v Farrar Construction Ltd